Storage will be an important driver of India’s solar market, say analysts.

Battery storage is being tapped as a supplement to the $250 million market for off-grid power in India.

A report out this month from the London-based Climate Group and the Goldman Sachs Center for Environmental Markets concludes storage will be an important component of solar home systems in the country, sales of which are expected to grow at 60 percent a year between now and 2018.

The report, titled The Business Case for Off-Grid Energy in India, identifies solar and storageas a tool for lifting 360 million Indians living off-grid -- around 50 percent of India’s rural population -- out of energy poverty.

Under current forecasts on grid expansion, as many as 75 million households in India will still be off-grid in 2024 -- a 5 percent improvement from the current level.

Traditionally, off-grid populations have relied on diesel generation and kerosene lighting. Both are expensive and polluting, with kerosene resulting in chronic illnesses brought on by fumes.

Low-cost renewable generation devices such as solar lanterns are already providing many people with very basic needs. But these devices will need to be replaced with more robust power systems as off-grid households start using higher-wattage appliances such as fans and televisions.

The answer is solar home systems with batteries. The report says these “consist of solar panels and an energy storage device that power a nearby home or business. Systems can also include a charge controller and/or an inverter for AC connections.”

According to the report, more than 40 companies are already eyeing this market. The vast majority are small firms moving less than 5,000 solar home systems a year.

Among the more established players is Simpa Networks, which provides solar home systems on a pay-as-you-go basis. Using a mobile phone, users prepay for their electricity.

“Households cannot afford the high upfront cost of a quality solar energy system and thus remain locked into expensive fuel-based lighting and battery-charging fees,” says Simpa on its website.

“Over the 10-year useful life of a quality solar home system, households will spend $1,500-$2,000 on kerosene, candles, batteries, and phone charging.”

This represents up to 30 percent of average annual incomes for India’s poorest consumers. Other providers are looking at similarly inventive ways to help customers cover the $200 to $400 upfront cost of a solar home system.

Even so, The Climate Group notes that the margins for solar home system vendors are thin. Components account for between 70 percent and 80 percent of the retail cost of a solar home system.

Of this, PV panels make up 50 percent, batteries add a further 15 percent, and the rest is for wiring, lights and other product add-ons.

But the gross product margin of between 10 percent and 25 percent drops to 4 percent or less after transportation, marketing, distribution and installation.

Despite this, The Climate Group and others clearly see major growth potential in solar home systems and their associated battery requirements.

“More than 300 million Indians are still living off the grid,” said Arjun Gupta, system design engineer at UGE. “Even in places where there is access to the grid, there are frequent outages, increasing the demand for storage, especially for businesses."

Gupta points out that the energy storage opportunity in India is not limited to solar home systems. “The Indian market holds great promise for microgrids designed for the telecom space, as more and more towers are required to meet mobile demands,” he said. “A large portion of the telecom towers in India are located in off-grid or grid-poor locations, and solar-plus-storage systems are both a reliable and cost-effective solution for such sites and many other commercial applications.”

For now, said Gupta, lead-acid batteries remain the most appropriate storage technology because of their low capital cost and fairly robust performance.

But as prices continue to fall, “higher-performance lithium batteries look to be the most viable solution for the future.”

Madhavan Nampoothiri, founder and director of RESolve Energy Consultants, said that the battery market could expand beyond solar.

"It is not necessarily solar plus battery storage, since the penetration of solar PV systems in the residential segment is still negligible," said Nampoothiri. “The real market demand for energy storage is driven by the frequent power cuts that plague most of the country, especially during the summer months when the demand is very high.”